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Inside the Market’s roundup of some of today’s key analyst actions

RBC Dominion Securities analyst Nelson Ng thinks market expectations for Northland Power Inc. (NPI-T) are “depressed after disappointing Q1/23 results and updates,” and he estimates its shares are “trading at a level that assumes no value for the company’s growth platform.”

“We believe a combination of cost increases at Baltic Power, delays in reaching financial close at Hai Long, the utilization of the ATM at $34 per share, and weaker-than-consensus Q1/23 results all contributed to a sharp decline in the shares of NPI in May,” he said. “In Q1/23, we believe concerns that project cost inflation will negatively impact project returns, and the need to raise capital to fund growth were contributors to the share price weakness.”

While acknowledging “choppy waters” may persist in the short term, Mr. Ng upgraded his recommendation for Northland shares on Wednesday to “outperform” from “sector perform,” citing “several positive catalysts that could lift the shares higher this year.”

The analyst pointed to three potential events that may spark a share price jump:

* The close of its deal with Gentari International Renewables Pte. Ltd. to reduce its interest in the Hai Long offshore wind project, calling it a “large re-risking event.”

Analyst: “Some market participants we’ve spoken to believe the company is taking on too much risk in Taiwan with respect to the elevated geopolitical tensions and starting construction before financial close is reached.”

* The financial close of its Baltic Power offshore wind development in Poland.

Analyst: “Once financial close is achieved (management expects later this year), the capital and finance costs will be largely locked in.”

* A plan to raise $500-millionn of capital this year to fund its equity investment in project developments.

Analyst: “We believe it was negatively viewed when the company issued a modest amount of shares through the ATM at an average price of $34/share in 2023. Management recently indicated that they are no longer looking to utilize its ATM, and believes the hybrid debt market could provide an attractive cost of capital. We believe another funding alternative is selling down a stake in the Baltic Power development.”

Mr. Ng maintained a target of $36 per share. The average target on the Street is $41.70, according to Refinitiv data.

“We believe the shares of Northland Power are at a level that reflects no value for the company’s growth platform,” he said. “We estimate that the value of the existing operating assets total $30.00/share (including cash), and the company’s carrying value in JVs (mainly Hai Long and Baltic Power) total $3.41/share at the end of Q1/23.”


Further upside for Stella-Jones Inc. (SJ-T) will “likely be dictated by investor confidence in the sustainability of poles pricing,” according to National Bank Financial analyst Maxim Sytchev, who thinks the “current spectacular growth” in that segment is likely to start to normalize in 2025.

Ahead of the company’s Investor Day event on Thursday, he said record utility pole pricing has “accelerated” the Montreal-based company’s sales and earnings growth, leading him to suggest 2022–2024 guidance is now “too conservative.”

“As IIJA funding in the U.S. has helped fund pole demand by telecommunications and utilities firms seeking to expand and strengthen their networks, SJ has been able to take advantage of rising prices, helping push Q1 results to a material beat (pole sales were up 29 per cent year-over-year organically on pricing strength), especially on the bottom line,” he said. “As a result, consensus NTM [next 12-month] EBITDA (incl. IFRS) has increased 12 per cent since the start of the year to $494-million while SJ shares are up 24 per cent year-to-date (and 81 per cent since our July 13, 2022 note - Deep dive on value + cyclicality; would MBO work?). Furthermore, LTM [last 12-month] financials are already running ahead of the company’s 2022–2024 guidance originally published in March 2022, as TTM [trailing 12-month] revenues are already above the $3-billion upper end of management’s forecasts while EBITDA is already 40 bps higher than the original 15-per-cent target. The question, naturally, is how long can double-digit price increases for poles continue?”

Mr. Sytchev thinks the company’s first-quarter outlook pointed to a 20-per-cent compound annual growth rate for poles between 2022 and 2024, while he’s now forecasted a 24-per-cent. It also suggests an EBITDA target of 16 per cent, up 1 per cent over the previous 15-per-cent goal.

“For context, both consensus and NBF estimates imply a 15.5-per-cent post-IFRS EBITDA margin for 2023,” he said. “Our sales mix forecast is also skewed towards infra-related businesses (ties/poles/industrial products) relative to consensus and company guidance as a result of protracted softness in residential lumber (our $397-million 2024 revenue estimate is 32 percent below consensus) on lowerpricing and volumes as consumers’ discretionary purchasing power is compressed by higher rates and persistent inflation.”

In a report released Wednesday, Mr. Sytchev examined the potential for gains from M&A activity, which he called “the engine for growth up until the departure of ex-CEO Brian McManus in 2019.” He concluded large deals are unlikely given Stella-Jones’s key verticals are “consolidated.” However, he thinks smaller opportunities are possible.

“The residential lumber segment is rife with M&A opportunity, but we doubt that management would seek to increase its 25-per-cent top-line exposure to a hypercyclical industry (which also tends to lower at structurally lower multiples),” he said. “We believe that cross-arms might present some incremental upside for poles (structures that attach wires to the actual poles) while perhaps cement / composite capability might make sense at some point as well (even though it represents single-digit percentage in terms of industry volumes). Assets owned by Kansas City Railway might present another small tuck-in down the road. When combining all of the above, we believe we are talking about an addressable top-line addition of around $400-million.

“For modeling simplicity’s sake, we assume that all three deals take place in year 1. We have seen StellaJones historically exhibit a disciplined approach to acquisitions (average EV/Sales multiple just shy of 1.0 times; we model 11-per-cent EBITDA margin for the acquired assets as family-owned type businesses typically lack scale – we assumed 15 per cent of acquired company’s EBITDA in synergies). Based on our numbers, EPS accretion would be in 7.2-per-cent (max 11-per-cent) range while NAV upside would stand at around $4 per share (or 6.3 per cent). While these are not immaterial numbers, note that this is a cumulative impact from several deals.”

Seeing little potential for a “game changer” in the near term, Mr. Sytchev maintained a “sector perform” rating and $64 target for Stella-Jones shares. The average is $69.57.


Raymond James analyst Jeremy McCrea predicts the results from Obsidian Energy Ltd.’s (OBE-T) exploration program at its Bluesky resource will “redefine the next decade.”

“A lot has happened with Obsidian over the past few years,” he said. “Between restarting its Bluesky/Clearwater operations, shifting from a debt repayment strategy to a growth strategy, and more recently implementing an NCIB, there’s increasingly a lot to like with OBE. Unfortunately, the company remains off the radar for most investors today. OBE has been in the ‘show me’ phase for quite some time but this looks to be potentially changing. The results of its Bluesky exploration program meaningfully prove up a large swath of new development opportunities, that look to be highly competitive with other high return oil plays. When combined with a consolidation strategy that is starting to form as well, we see Obsidian having one of the larger multiple re-rates in the sector as the company’s profitability and ‘value creation’ changes going forward.”

Mr. McCrea also called Bluesky “one of the most economic plays seen in recent years.”

“Obsidian recently drilled two exploration wells with IP30 rates at 211 bbls/d and 303 bbls/d,” he said. “Although these rates may not make headlines, it’s the low decline nature of the pool and aerial extent that makes these exploration wells very intriguing. Essentially, these wells prove up the southern extension of CNRL’s reservoir in the region and a meaningful push to the east for OBE’s land. With these wells seeing 2 times payout in 2 years, 3 times payout in 3-3.5 years, and 5 times payout in 5-6 years, the Bluesky is highly competitive. With OBE’s showing the bookends of the pool extension, we believe there is likely 200+ new locations to drill up over the next decade (and $1.5-billion-plus worth of value).”

Pointing to a “significantly improved” balance sheet in recent years, Mr. McCrea sees Obsidian in a “a much better position to resume its consolidation strategy (that it attempted with Bonterra a couple years ago).”

“Although, Obsidian and Bonterra have had their history, we think there possibly remains better opportunities as Cardium valuations stay stagnant (especially with private or less liquid E&Ps),” he added.

Also pointing to its Bloomberg search ranking, the analyst bumped his target for the company’s shares to $14 from $13.50, keeping an “outperform” recommendation. The average target is $12.10.

“We find that the names that have the biggest potential share price return are those that are off the radar screens with investors,” said Mr. McCrea. “Not only does a change in fundamentals help growth but names that are heavily discounted receive a better multiple uplift than other names with a ‘rate of change’ narrative. OBE is currently the 39th most searched CDN Oil & Gas names and the 377th most searched TSX name. We think this starts to change.”


Credit Suisse’s Andrew Kuske thinks a stronger-than-anticipated first quarter from Emera Inc. (EMA-T) “clearly helped boost confidence in the core businesses.”

“Q1 2023 financials were notable, in part, given the reported headline EPS of $2.07 and adjusted of $0.99, with the latter clearly being more important in the beat versus expectations,” he said. “With Emera Energy Services (EES) supporting much of the financial positivity (unadjusted and adjusted), we note EMA’s cautionary language on maintaining guidance given various factors over the rest of 2023. Yet, the positivity combined with steps towards balance sheet health and, on a longer-term basis, potentially improved dynamics in Nova Scotia collectively support multiple expansion.”

“Such performance also aids the path to addressing ‘top of the house’ (versus the opcos) debt dynamics. Ultimately, the core Florida business is a key growth driver at a reasonable valuation for the stock and some of the Nova Scotia specific issues are likely to pass – albeit not immediately and the positive Atlantic Canada upside from renewed economic opportunity looks lengthier in time to be realized, but that potential may be growing in scale and scope. To us, execution remains in clear focus for EMA and looks manageable, however, with some degree of relative risk versus other opportunities.”

Mr. Kuske raised his target for Emera shares to $60 from $55, keeping a “neutral” rating. The average is $60.36.

“Emera is positively exposed to Florida, however, the issues in Nova Scotia will look to weigh on the stock,” he concluded.

Separately, Mr. Kuske trimmed his Keyera Corp. (KEY-T) target to $39 from $39.50 with an “outperform” rating. The average is $35.68.


Scotia Capital analyst Konark Gupta sees the potential for an earnings beat and “solid” growth guidance when CAE Inc. (CAE-T) reports its fourth-quarter results on May 31.

“Consistent with historical trends, we expect FQ4 to be seasonally the strongest quarter with typical back-end loaded strength in all three segments, aided this year by more positive momentum in business and commercial aviation markets as air travel demand remains solid,” he said. “What’s more interesting, however, this time is that CAE’s full-year guidance of mid-20-per-cent EBIT growth implies FQ4 EBIT could beat consensus by 7-15 per cent. Moreover, we expect CAE to maintain its three-year EPS CAGR [compound annual growth rate] target of mid-20-per-cent (F2025 vs. F2022), which could mean that the company could potentially guide continued mid-20-per-cent EBIT growth for F2024 (above or below would depend on FQ4 results), thereby supporting consensus.”

Expecting all three of CAE’s segments to beat the Street, Mr. Gupta raised his earnings per share projection for the quarter to 35 cents, which is 2 cents above the current consensus and up 21 per cent year-over-year.

“We are raising our FQ4 estimate to further above latest consensus while tweaking our longer-term outlook for mid-20-per-cent EBIT growth in F2024 and unchanged mid-20-per-cent EPS CAGR through F2025,” he said. “We also continue to expect CAE to achieve its near-term target of approximately 3.0 times leverage ratio by mid-F2024. We maintain our $38 target and Sector Outperform rating as CAE is one of the lower-risk global aviation plays that also benefits from increasing global defense spending.”

Mr. Gupta’s $38 target exceeds the average on the Street of $36.33.


While it was able to “make incremental improvements to its margin profile with an increased focus on cost management,” pricing pressures continue to weigh on Acreage Holdings Inc.’s (ACRG.B.U-CN) growth, according to Canaccord Genuity analyst Matt Bottomley.

On Monday, the New York-based multi-state operator of cannabis cultivation and retailing facilities reported first-quarter revenue of US$56-million, down from 2.6 per cent from the previous quarter.

“Management pointed to continued industry headwinds (most notably competitive pricing pressures) as the primary reason for the sequential decline, even amid its launch into the Connecticut recreational market during the quarter (with two retail locations open to date),” said Mr. Bottomley. “Although slightly lower than our expectations, we were not overly surprised by Acreage’s Q1/23 top-line in what was a seasonally lower period throughout virtually all U.S. markets.

“Below the top line, Acreage reported a gross margin of 48 per cent and an adjusted gross margin of 51 per cent (when excluding non-cash inventory adjustments booked during the period). On an adjusted basis, this represents a quarter-over-quarter improvement of 700 basis points as the company continues to execute with a strict eye on cost controls and a focus on its core markets where it is already profitable. On the opex front, cash spend came down by almost 10 per cent quarter-over-quarter, resulting in an improved adj. EBITDA profile of US$10.6-million (18.9-per-cent margin ) vs. US$7.0-million (12.2-per-cent margin) in the prior quarter, which was above our expectations for the period given the reduced top-line. However, although a sequential improvement, we note that ACRG is still operating with a negative operational cash burn, which came in at US$8.1-million for the quarter.”

With Acreage continuing toward the completion of its acquisition by Canopy Growth Corp., Mr. Bottomley trimmed his target for its shares to 50 US cents, matching the average on the Street, from US$60 cents with a “hold” rating.


In other analyst actions:

* Resuming coverage following the close of its $35-million share offering in conjunction with its new multi-year commercial agreement with Linamar Corp., ATB Capital Markets’ Chris Murray cut his Exro Technologies Inc. (EXRO-T) target to $3.25 from $3.30 with a “speculative buy” rating. The average is $3.28.

We see the commercial partnership with Linamar, a global Tier 1 automotive supplier, representing a significant step for the Company, as it provides visibility into volume growth over a multi-year period and offers further evidence that Exro’s Coil Driver technology is de-risking,” he said. “The timing of the equity issuance comes as expected and, when combined with the expanding relationship with Linamar, reinforces our view that the Company is positioned to turn EBITDA positive in 2024.”

* BMO’s Brian Quast downgraded Superior Gold Inc. (SGI-X) to “market perform” from “outperform” with a 60-cent target. The average is 30 cents.

“SGI reported Q1/23 results which missed expectations,” he said. “After ending the period with cash of $3.2-million, liquidity remains a concern. The company is focused on the proposed Catalyst Metals transaction which is scheduled for a shareholder vote on June 26, 2023. The board has unanimously recommended voting in favour of the transaction. We expect SGI shares to trade in line with CYL shares, which has led us to lower our recommendation.”

* JonesTrading initiated coverage of Oncolytics Biotech Inc. (ONC-T) with a “buy” rating and $9 target. The average on the Street is $7.83.

* In response to it $1.7-billion asset sale and updated 2023 guidance, ATB Capital Markets’ Patrick O’Rourke cut his Spartan Delta Corp. (SDE-T) target by $1 to $16.50 with an “outperform” rating. The average is $18.13.

“Overall, we view the event as neutral, with guidance generally meeting expectations from our initial analysis when the deal was announced,” he said.

Follow David Leeder on Twitter: @daveleederOpens in a new window

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